In this video, Mike Kerley, Co-Head of the Asian Income Dividend Strategy, provides a year-to-date review of Asian equities and shares the team’s outlook for the remainder of the year. In particular, he looks at what is driving the demand for high dividend yielding stocks and which countries and areas offer the strongest dividend growth prospects.
Hi. I’m Mike Kerley and this is a quick update on what’s happening in Asia over the last six months and our views for the second half of the year.
It’s been an interesting six months. Obviously we started the year very poorly, with fears about what was happening with US interest rates, obviously growth in China, etc. Since then, we’ve had a fairly mute recovery. So, for the six months, Asian markets are up about 2.5% in dollar terms. Obviously in sterling terms that’s quite a lot higher, following the fall in sterling at the end of June, following Brexit. That’s about a 13% rise, in sterling terms.
So, a fairly subdued return but quite a volatile period and I think that probably continues for the rest of the year. There’s a lot of upheaval in currency markets, a lot of uncertainty as well and obviously, as we go further into the year, we start talking about the US elections and what that could mean. I think, for Asia, that’s probably more important than Brexit, although clearly Brexit’s implications for Europe and global trade could have an impact on the region.
Within Asia itself, we’ve had some slight recovery in the economic numbers, especially in China but also in India. And, we’ve seen some markets do particularly well on the expectation of increased infrastructure spend, namely Indonesia and Thailand. We’ve seen interest rates being cut across the region as well, so more accommodative policy, if you like, going against what’s, potentially, going to happen in the US. Although, to be honest, it looks now more likely that US rates won’t be rising any time soon.
So for us, on the income strategy, we continue to focus really on the two strings of that income strategy, which is high yield and dividend growth. On the high yield side, these have been very popular with, obviously, interest rates being low the demand for yield is still there. So, certain markets in particular which yield highly, like Australia and certain sectors within that, like REITs and utilities, have done particularly well. But, that’s kind of broadened out now to the rest of the region, so we’re seeing telcos do well, also REITs in places like Hong Kong and Singapore also do well.
On the other side of that, we’ve also got some structural stories. Whether it’s technology, which is less relevant to us on the income side, but things like Tencent and Samsung Electronics have had a decent recovery as well.
Following Brexit, I think we’ve seen some positive flows into the region. Not so much, I would say, yet into income products. I think a lot of it’s been more ETF-focused. But, we’re pretty hopeful that, actually, Asia looks pretty popular compared to other equity destinations for the rest of the year and we’d expect, you know, Asia and EM, from a flow perspective, probably to outperform other equity strategies.
So, what are we doing in the funds? Well, we continue to focus on high yield. We think the demand for yield will be a very strong driver for Asian markets. We’re seeing very decent dividend growth across the region in general, but particularly in some of the markets that, maybe, have most room to move in terms of dividend growth; places like Korea.
We are reducing our weighting slightly in China. Not that we have a more negative view on China in terms of growth, it’s just that we’re a little uncertain about policy and where policy moves into the second half of the year. So, for that reason, we’re reducing exposure to banks and financials in general as we really don’t have a great feeling for policy for the second half of the year. Undoubtedly, the market’s cheap but we are focusing on more certain earnings streams. Companies like in toll roads and in water supply, in new energy vehicles and areas like that.
The Australian weighting has picked up a little. Again, this is more of a focus towards sustainable and high yield, which we think will be popular. And, elsewhere in the region, we’re finding opportunities continually in the industrial space, consumer space and telcos.
I will leave it there. Thank you very much.
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